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Tax tips for entrepreneurs to address before 6th April 2010

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Business advisors at Deloitte are urging entrepreneurial businesses to make final reviews of their tax position to ensure their financial house is in order before the start of the next tax year.

Deloitte’s call comes in light of the numerous changes introduced in the 2009 Budget that are due to come into effect on 6 April 2010. Deloitte states that if action hasn’t already been taken, now is the time for entrepreneurs to consider any steps whilst there is still time to act before these changes are implemented.

Debbie Griffiths, tax partner in the entrepreneurial business team at Deloitte, commented: “Entrepreneurs should be considering ways in which the forthcoming tax changes could affect their business from 6 April. Although issues like the 50% top rate of income tax have garnered much attention, there are many aspects surrounding tax that are being potentially overlooked. With that in mind, entrepreneurs should take careful steps to review all aspects of their tax strategy to ensure they are fully aware of the changes and taking full advantage of any available reliefs.

“In advance of the end of the current tax year, we have compiled an overview of some common areas that growing enterprises may wish to consider and include matters such as retained profits, bonuses and salaries, share awards and share schemes and savings for unincorporated businesses.”

  • Retained profits
    Many businesses should consider their retained profit position and the level of dividends which could be paid out at the 25% effective rate (for most dividends) before it rises to 36.11% for those with income in excess of £150,0000 from 6 April. Reinvestment of the dividend by way of further equity or loan could be considered to neutralise any depletion of working capital.
  • Bonuses and salary
    Business owners may consider early payment of salary and bonuses for themselves or their high earning employees where those amounts may fall within the 50% income tax bracket from 6 April. Clearly, there are both employment law and commercial considerations here, for example, notice periods and claw back provisions, and separate advice should be taken on this matter.
  • Share awards
    Share awards to high earning employees might be made before 6 April to reduce the tax and NIC burden where the shares are awarded for less than the unrestricted market value. Where a company has unapproved share options in place, higher-rate taxpayer employees may consider exercising those options before 6 April in order to pay tax on the gain at the current 40% top rate, provided they feel this is a commercially sensible time to exercise.
  • Share schemes
    As the rate of capital gains tax (CGT) has been left unchanged at 18% (and 10% for Entrepreneurs’ Relief), share remuneration continues to be an attractive method of rewarding employees. Many entrepreneurial businesses are re-examining the potential of approved share schemes for their key personnel and directors. Certain unapproved schemes, such as growth shares and joint ownership arrangements, can deliver value at 18% CGT, based on the growth of the company, providing a strong incentive tool combined with a relatively low up-front tax cost. The tax value of the shares awarded will depend on its current performance and the prospects for the business.
  • Savings for unincorporated businesses
    Unincorporated businesses may wish to look into the timing of deductions, including certain capital allowance claims, to see if the benefit of these can be deferred to a tax year where the 50% relief is available rather than 40%.

Posted March 22, 2010

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